TRANSPORTATION AND LOGISTICS BRIEFING: Delphi will acquire nuTonomy for $450 million — Tesla looks to unlock China with new factory — Urban warehouse space in high demand in Europe

Welcome to Transportation & Logistics Briefing, a new morning email providing the latest news, data, and insight on how digital technology is disrupting transportation and delivery, produced by BI Intelligence.

DELPHI AGREES TO ACQUIRE NUTONOMY FOR SELF-DRIVING PUSH: Delphi, one of the world’s largest auto parts suppliers, announced yesterday that it is acquiring autonomous car startup nuTonomy for $450 million.

Delphi is aiming to accelerate its autonomous car efforts through the acquisition of nuTonomy’s self-driving software system and team. Delphi will fold more than 100 nuTonomy employees, including 70 scientists and engineers, into its own 100-plus team dedicated to autonomous technology. The two companies are also both working on self-driving car tests in Boston and Singapore, and will combine the initiatives. Delphi said that, with the acquisition, it will be testing 60 autonomous cars across three continents by the end of 2017, including tests in Pittsburgh, Santa Monica, and Silicon Valley. The company plans to rapidly expand those pilots going forward, allowing it to quickly test its self-driving technologies at scale in several different environments around the world.

Additionally, Delphi’s and nuTonomy’s current self-driving car partnerships will remain in place once the acquisition is complete, Delphi said.

Delphi has partnered with Intel-owned MobilEye to build a self-driving system, which the companies plan to put into production by 2019.

nuTonomy has partnerships in place with ride-hailing companies Lyft and Grab, as well as Groupe PSA, which owns European auto brands Peugeot and Citroen.

nuTonomy’s partnerships with Lyft and Grab, and ongoing self-driving taxi test in Singapore, were likely very attractive to Delphi. The company said it sees autonomous car technologies first coming to market in commercial use cases like ride-hailing.

This move follows Delphi’s recently announced plans to split the company into two entities to accelerate its development of new technologies. Delphi said it will rename itself Aptiv, which will house its car electronics unit and self-driving division, and spin off its powertrain unit into a new business, called Delphi Technologies. This should allow the former to dedicate more focus to the development of self-driving technologies capable of disrupting the auto business, an effort that will be bolstered by the addition of nuTonomy. Delphi is clearly set on being one of the first companies to market with self-driving technology, and should be counted among the frontrunners in the race to self-driving cars, along with the likes of Waymo and GM. That could put it in a strong position to cash in on the market for advanced driver assist and autonomous systems, which could reach $26 billion by 2025, according to Bain estimates.

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CHINA FACTORY TO GIVE TESLA CRITICAL ADVANTAGES: Tesla recently reached an agreement with the local government in Shanghai, China to build a factory in the city — the automaker’s first in the country, The Wall Street Journal reports. The facility will be deployed in the city’s free-trade zone, enabling Tesla to avoid a requirement that stipulates Western firms must set up a joint venture to manufacture goods in China. The automaker was first rumored to be exploring Shanghai as a potential location for the factory this past summer.

The factory has several clear benefits for the automaker:

It’ll allow the company to slash its production costs in an increasingly key market. While Tesla will likely still need to pay China’s 25% import tax, the factory would significantly reduce its shipping costs, as it wouldn’t need to import cars from the US, or rely on expensive US labor. Nineteen percent of the company’s global vehicle sales thus far in 2017 came from China, up from only 5% in 2015, and Tesla’s revenue from the country topped $1 billion for the first time last year.

In turn, that could allow the automaker to lower vehicle prices and expand its potential customer base in the country. Tesla’s vehicles currently cost about 50% more in China than they do in the US, largely because of high shipping costs and the country’s import tax. If the automaker is able to reduce labor and shipping costs, it might be able to slash vehicle prices, expanding the number of Chinese consumers who can afford its cars. That's especially important as it looks to start delivering Model 3s in the country in the near future.

Moreover, it could set the firm up to capitalize on the market’s forthcoming growth. The country is already home to the world’s largest automotive market, according to McKinsey estimates, and the government is working on a timeframe for banning gas and diesel fuel cars, which will drastically expand the market for electric cars like Tesla’s. Manufacturing in Shanghai would please government officials, auto industry consultant Michael Dunne told WSJ, allowing it to take advantage of the market’s expansion in the coming years.

Additionally, Tesla’s electric vehicles (EVs) are far ahead of Chinese brands in terms of overall quality, according to a recent Piper Jaffray analyst note cited by CNBC. That means Tesla is unlikely to face serious competition in the country if it can move quickly in setting up a new factory and delivering Model 3s. However, Tesla could face challenges in getting production ramped up — for example, it may need to establish new supplier relationships in China, including with a new battery vendor. Japan-based Panasonic currently supplies Tesla’s batteries, but the Chinese government only allows automakers to buy electric batteries from a pre-approved list of Chinese vendors. Establishing new vendor relationships could slow Tesla’s manufacturing efforts in China, which might give competitors time to catch up.

EUROPEAN CITIES NEED MORE WAREHOUSE SPACE TO COPE WITH E-COMMERCE GROWTH: A highly urbanized population and rapid growth in online retail sales will lead to booming demand for urban warehouse space in European cities, according to a new report from real estate firm Cushman & Wakefield and warehouse management company 3P Logistic Park.

The report projects rapid increases in parcel volumes in Europe, driven by increased e-commerce. Overall e-commerce in the region is expected to reach €450 billion ($530 billion) by 2021, up from €232 billion ($273 billion) last year, the report said, citing numbers from the Centre for Retail Research. That will drive up the total number of parcels delivered annually in the region by 69% by 2021.

Delivering more parcels to Europe’s already highly urbanized population will force retailers and delivery providers to drastically expand their warehouse space in high-rent urban environments. This will be necessary to meet increasing customer expectations around speed of delivery and minimize last-mile delivery costs by placing inventory closer to customers’ residences, the report noted. London, for example, already needs 870,000 square meters of warehouse space to meet current demand for parcel deliveries, and that will increase 43% to 1.2 million square meters by 2021. That actually marks the slowest growth in warehouse space requirements of any city covered in the study — Madrid will see 102% growth over the next four years to reach nearly 400,000 square meters, while Warsaw will see 90% growth to land at 82,000 square meters by 2021.

However, companies face significant challenges in obtaining more urban warehouse space. Most European urban warehouses are currently situated on the edge of cities because of higher rental costs for more inner-city properties. Additionally, zoning restrictions in certain cities can prevent companies from using otherwise suitable lots for warehouse space. And competition over available warehouse space is fierce — last year, available warehouse space in the UK hit a record low after a major push by Amazon. The e-commerce giant single-handedly accounted for more than a quarter of all warehouse space rented in the country in 2016, and has plans to open 1,300 new urban warehouses in Europe. This will force retailers and logistics companies to optimize the space they can get their hands on through new warehouse building designs, as well as working with municipal authorities on potential mixed-use facilities to help circumvent zoning restrictions, the report suggested.

IN OTHER NEWS

Chariot, Ford’s shuttle-based ride-sharing service, has resumed operating in San Francisco after temporarily halting service to iron out regulatory issues with the California Highway Patrol, according to Engadget. Chariot, which Ford purchased back in September 2016 for a reported $65 million, is designed to allow commuters to get to work without using mass transit. The shuttle picks up passengers who request a ride on the service’s mobile application, and is routed through an algorithm that determines the fastest trip possible. The service, which operates in four US cities, is a key part of Ford’s Smart Mobility Group.

German supermarket chain Lidl has unveiled a new grocery delivery service in South Carolina, according to Food Logistics. The deliveries are conducted by delivery startup Shipt, and for now are only available in Greenville, South Carolina. The European grocery chain opened its first stores in the US across a handful of states, including South Carolina, Pennsylvania, and Georgia, back in June. The company likely hopes the delivery service will help it compete with US grocery giants like Walmart and Kroger.

GM announced a $3 billion net loss for Q3 when it reported earnings earlier this week, according to The Wall Street Journal. The loss primarily stemmed from the sale of the company’s Opel European business, resulting in the elimination of a $2.3 billion tax benefit, and production declines throughout North America.